The U.K.’s antitrust watchdog says GXO’s acquisition of Wincanton is likely to result in a “substantial lessening of competition” in the supply of warehousing services to the country’s grocers.
GXO completed its $965 million deal to acquire the U.K.-based logistics and services provider last April, outpacing Ceva Logistics in a bidding war for the company.
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But that deal has been under a probe from the Competition and Markets Authority (CMA) since May.
After closing its “phase one” investigation into the deal in November, the CMA said the deal would reduce competition for contract logistics services in the U.K. The CMA then extended the probe to “phase two,” before GXO filed its response the next month. Despite the rebuttal, the watchdog concluded that the deal would lessen competition.
GXO has until March 12 to submit its second response to the CMA’s report. The company said it plans to present a response to the authority, and will continue to work towards full clearance of the transaction by the end of April.
The CMA is targeting GXO’s dedicated warehousing services, which refer to facilities that are used exclusively by a single customer.
The regulator is concerned that there are only three major suppliers of dedicated warehousing space for U.K. grocers—GXO, Wincanton and DHL. Following the transaction, customers could still turn to DHL or establish their own in-house warehouses, the CMA said.
But the watchdog noted that while in-house warehousing is viewed as an alternative in certain circumstances, the “evidence shows that this is not the case for a significant number of customers and/or tenders. This is consistent with the fact that five out of eight grocery customers expressed concerns to us regarding the merger.”
“These remaining alternatives would not be sufficient to prevent fees rising,” the CMA said in its assessment. “The deal could raise costs for grocers that rely on dedicated warehousing services as part of their logistics.”
The inquiry group said its evidence indicated that customers often prioritize reputation, reliability and track record when choosing contract logistics services providers. According to the CMA, the evidence shows that customers’ preference for suppliers with a track record creates a barrier to entry and expansion for smaller logistics providers.
Brian Templar, chairman of U.K.-based logistics consultancy Davies & Robson, told Sourcing Journal nearly a year ago that the deal could run into problems with the CMA.